If you have any interest with investing in commodities, more specifically precious metals, like gold and silver, then you are probably wondering whether or not it is really a solid investment to hedge against inflation. I will start by saying yes, any time in which you take paper, fiat currency, and exchange it for a tangible item that others value or would desire to own, than you have created a hedge against inflation, to a degree. In regard to precious metals I say to a degree, because there is still the debate of whether or not they will have any real value in the event of a total fiat currency collapse, after inflation has taken a nose dive.

“You Can’t Eat Silver and Gold!” I would like to acknowledge those who say, “You can’t eat gold and silver!”… No sh$t Sherlock! You also cannot eat dollars and cents, but that does not serve as sensible evidence that precious metals will be rejected as currency in a free market. Is everybody going to be capable of purchasing goods/services and pay employees with bread and wine? What do you trade the people who can make all the bread and wine they need? People who have this kind of mindset are the type of individuals who envision a “Mad Max” barter society, when the fiat currencies collapse. Unfortunately, the biggest problem I have with a free market exchange based off the barter system is that everybody will not have the land/skills to farm or craft enough trade value in order to sustain a living, and one man’s trash may not be another’s treasure. Farmers and tailors will be a dime a dozen and land will be scarce. A society run solely on a barter system would become a society of social Darwinism, a society of the haves and the have-nots. This is when slavery, looting, and human exploitation become prevalent in society. Understand the phrase “the rich get richer” and realize that if currency (in the form of paper or precious metals) is rejected, that doesn’t mean those who are rich with desirable assets won’t use them as leverage to make sure they keep that rich standard of living they have grown accustom to. Those who say, “You can’t eat gold and silver” don’t understand that currency will always exist in one form or another wherever there is a free market system. If we aren’t trading precious metals, paper, gems, or some other inanimate object, then you may find that people will be trading labor (human beings), violence, or the promise of. Yes, that would be great if our new paper currency was insured and “backed” by the promise of cold hard ass kickings! (sarcasm)When the Smoke Clears… The value of precious metals are driven by our industrialized world and their practical use in manufacturing, the rarity of the metal, and it’s monetary value as a resource/commodity based on supply and demand of the free market. When people say buy precious metals to hedge against inflation, what they mean is that as governments continue to print more and more funny money (uninsured promissory notes), the larger amount of that funny money it will take to purchase those precious metals. That’s a fine and dandy way of looking at precious metals as an investment, during inflation, but what about a collapse? Let me illustrate: · You bought 500oz of silver(coins/bars/hard asset) at $20 an ounce (a $10k investment) · Inflation drives Silver all the way to $70 an ounce (a 350% ROI) · It now takes an investor $35,000.00 to buy that same 500oz of silver, you bought for $10k · Fiat currency spikes during hyper-inflation and now the currency holds absolutely no trade value · Investors stop liquidating their assets and the markets come to a halt I believe the markets would come to a halt, because if no one accepts fiat currency anymore then there would most likely be a period of panic followed by a period of reform, in order for the market to determine the value for everything traded, where there is no longer a price tag to guide you. What I mean is that, during the pinnacle of my fiat inflation example, your five hundred ounces of silver was worth thirty five thousand dollars, but after the collapse, where no one is trading dollars for goods/services, your silver’s value is under heavy scrutiny. What is the value of that silver in comparison to a loaf of bread, a gallon of water, a gallon of gasoline, fire wood, or a house? How do you figure out how much precious metal it takes to trade someone in exchange for any product or service? There would have to be an anchor of sorts to create a foundation which all other value can be defined or measured.Our Most Precious Commodity I believe the answer lies in our most precious commodity of all, time. The value of a community’s currency could be determined by the amount of man hours it takes that community to produce the basic necessities for the average healthy individual to sustain life for one day, in relation to the supply and demand for those necessities by the community’s population. The amount of that currency in circulation would be based on the total amount of precious resource and tradable assets the community has to keep the machine running to sustain the population living within it, and/or offer neighboring communities in trade towards prosperity/growth. So in conclusion, my thoughts on the value of precious metals, after the collapse of fiat currency, is that the value will definitely go “up” in comparison to the fiat currency it’s value was once measured by, but as far as it’s practical value to trade towards goods and services will depend where you are in the world and who you are trading with. The value could range from being heavily inflated by a desperate consumer surplus caused by a less productive and over populated community, to “overrated” from a less populated but highly productive community where you could get more bang for your “buck”.